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Is it time to buy Indonesia ETFs? - ETF News And Commentary

Indonesia weathered the storm better than most of its
counterparts when the global financial crisis struck. But the
nation was hit hard by the recent emerging markets crisis.

While poor infrastructure, poverty & unemployment, corruption
still remain a matter of concern inflation, current account
deficit and high interest rates have lately weakened the growth
prospects for the Indonesian economy.

Indonesian Economy & its Roadblocks

While the lull in the emerging markets has been pretty
widespread, the epicenter of the turmoil has arguably been in
Indonesia. (See:
Southeast Asia ETF Investing 101
)

In fact, International Monetary Fund (IMF) lowered the economic
outlook of Indonesia to 5.25% in 2013. IMF's earlier estimate in
April this year was 6.3%. This was mainly due to fears regarding
the Fed's tapering program and a slowdown in exports. and
weak exports. (Read:
Indonesia ETFs in Crash Territory on Currency
Woes
)

Weaker prices for commodities such as coal and palm oil have also
been a major cause for weak export revenues.

Moreover, the Bank of Indonesia has raised the benchmark interest
rate (BI) for the fourth time this year to 7.25%. This was mainly
done to stabilize its currency rupiah and to control the widening
inflation rate and current account deficit.

En Routeto Growth

While there have been dark clouds surrounding the Indonesian
economy there is still some ray of hope. While IMF has lowered
its economic outlook for Indonesia this year, the economy is
poised to return to growth in 2014 with improvements in the
global economy.

While many investors may have lately bottomed out due to a
weakening Indonesian economy, some may still consider this to be
a buying opportunity as the country is poised to gain momentum in
early 2014. Here we have chosen a few ETFs to play with.

Launched in May 2010, EIDO is one of the most popular Indonesian
ETFs; this product trades in about 550,000 shares a day, tracking
the MSCI Indonesia Investable Market Index. This benchmark
produces a fund that has about 100 stocks in its basket, with two
companies that have more than 10% of the total assets (see
all the Asia Pacific Emerging Market ETFs
). The product has amassed about $407 million in assets so far.

Top sectors for this ETF include financials (27%), consumer
discretionary (16%), and consumer staples (13%), while telecoms
and real estate round out the top five. Large caps make up about
80% of the basket while mid caps receive a decent allocation of
11%. The product charges investors 62bps in fees.

The top 10 holdings of the product contribute about 58% share in
the basket. Among individual stocks, Astra International, Bank
Central Asia and Telekomunikasi Indonesia take the top 3 spots in
the portfolio adding about 28%.

Launched in January 2009, IDX follows the Market Vectors
Indonesia Index, holding a basket of about 50 companies that are
based in or do a majority of their business in the Southeast
Asian nation. It has an AUM of $246.6 million.

Financials and the two consumer sectors are the top three
industries once again here, while assets are a bit more spread
out as no one company makeing up over 9% of assets. Large caps
are pretty prevalent though, as these make up 90% of assets,
leaving just a tad for small and mid cap stocks. IDX charges
investors 59 bps in fees.

The ETF is concentrated more in its top 10 holdings which
contribute a share of 55.29%. Among individual holdings, Bank
Central Asia, Telekomunikasi Indonesia and Astra International
take the top 3 spots.

Launched in March 2012, IDXJ is a small cap focused ETF, also
from Van Eck's Market Vectors brand. The fund tracks the Market
Vectors Indonesia Small Cap Index, holding about 34 stocks in its
basket. It has a low AUM of only $5.1 million and charges
investors 61bps in fees.

The fund does a decent job of spreading out assets as no single
company makes up more than 7% of the total, though it is a bit
concentrated from a sector look. Real estate (31%), industrials
(26%), and energy (20%) take the top three spots and constitute
the lion's share of the assets in IDXJ. (Find all
small cap ETFs
)

The top 10 holdings of the fund contribute a share of about 46%
in the basket. Individual holdings include Citra Marga Nusaphala
Per, Kawasan Industri Jababeka and Sentul City.

The Bottom Line

Indonesia ETFs have been terrible performers this year thanks to
a number of factors. Rising inflation, slowing growth, and
general emerging market concerns have plagued the country,
causing a near-crisis for the nation's stocks and its currency
rupiah (see instead
3 Emerging Market ETFs Still Going Strong
).

So investors willing to place their bets in the Indonesian
economy should make sure to have a strong stomach before trending
into this uncertain corner of the emerging market ETF world.

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